Real Estate in Steamboat

Margaret Benjamin was shopping at a Wal-Mart store in the pet department. Unknown to her, there was loose bird seed on the floor.

Mrs. Benjamin slipped and fell on the bird seed, allegedly suffering severe injuries to her chest, left knee and left side. She brought this lawsuit for negligence by Wal-Mart, the department manager, and an employee who was checking inventory nearby. Her husband filed a separate lawsuit alleging loss of consortium.

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The department manager and employee sought to be dismissed as defendants from the lawsuit. But Benjamin argued they ran the department so they had a duty to prevent injury to her from slipping on the bird seed.

If you were the judge would you rule the store employees had a duty to prevent a slip-and-fall injury to Mrs. Benjamin?

The judge said no!

“In order to establish a claim for negligence, plaintiffs must present evidence of a legal duty owed by the defendants to Mrs. Benjamin, a breach of that duty by a negligent act or omission, and damages that were proximately caused by that breach,” the judge began.

“While not an insurer of the safety of his customers, a store owner owes a duty to keep aisles and passageways in a reasonably safe condition and is liable for any injury resulting from the breach of this duty,” he continued.

“This duty includes a duty to reasonably inspect the premises and to remove debris that could cause the customer to fall. This storekeeper liability is founded upon the duty of care a possessor of land owes to an invitee,” the judge explained.

However, an employee does not have an affirmative duty to maintain safe premises of a store merely by being an employee unless there is evidence of a more substantial level of control of the business, he emphasized.

In this case, there is no legal possibility of a successful claim against the pet department manager or the inventory clerk because there was no evidence they negligently caused the dangerous condition of the bird seed on the floor, the judge ruled. Therefore, in the absence of proof of negligent hiring, training or supervision of the employees, they cannot be held liable for Mrs. Benjamin’s alleged injuries, the judge concluded.

Based on the 2006 U.S. District Court decision in Benjamin v. Wal-Mart, 413 Fed.Supp.2d 652.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

Q: I live in a two-story house that has T-111 plywood siding. As you know, this siding has a vertical groove every 8 inches. Across this siding I have a 2-by-12-inch board.

My question is: Should I caulk the top of the board to keep water from coming between the 2-by-12 and the siding, or is caulking not necessary? If caulking were required, what would you recommend?

A: T-111 siding is a type of plywood siding that was used a great deal in the ’60s, ’70s and ’80s to give a rustic appearance in the day when Mother Earth News and the “back to the landers” were all the rage.

The T-111 of those days had a rough-sawn, textured surface with vertical grooves milled every 4 or 8 inches. Thickness ranged from 3/8 inch to 3/4 inch. In the West, T-111 was usually fabricated from Douglas fir, but we’ve also seen it in redwood.

In the proper location, mostly wooded areas, we think it looks quite handsome. T-111 plywood siding can be either painted or stained.

T-111 siding is still manufactured today; however, it’s most often made from engineered wood products such as oriented strand board (OSB). This leaves paint as the only option for a finish.

T-111 siding is manufactured in 4-foot widths and in lengths of 8, 10 or 12 feet. This allows a single piece of siding to cover the entire height of a wall from foundation to soffit without seams.

The siding should always be installed with the grooves vertical. If it’s installed horizontally you’re begging for a leak.

Because you have a two-story home, we doubt that the siding covers the entire height of the wall from foundation to soffit. Hence the 2-by-12 “belly band.”

As to whether or where to caulk, there’s really no easy answer. You’ll have to do a little detective work.

Try to get a look at the butt joint where the two pieces of siding come together. This may require cutting away a small piece of the 2-by-12, or perhaps you can simply pry back the board and take a look. Be careful not to split the old wood.

If the siding was installed correctly, you should see a piece of Z-metal flashing at the butt joint of the two pieces of siding. Z-flashing fits between the two pieces of siding at the end joint where two pieces of siding are butted together. Looking at it from the end, it forms the letter “Z,” hence the name.

One leg of the Z fits over the bottom piece of siding. The top piece of siding slides over the other leg. The flashing allows water moving down the wall to always be channeled outside.

The top T-111 panel should be installed about 1/4 inch off the shelf formed by the flashing to prevent moisture from wicking up into the wood. This is especially important when using engineered siding.

If the siding was installed with Z-flashing, do not caulk in the grooves. Caulk only the seam where the 2-by-12 lies flat against the siding.

Caulking here prevents water from resting between the siding and the 2-by-12. The flashing will channel the water moving down the unobstructed grooves away from the top of the 2-by-12 down the wall.

If there is no Z-flashing at the joint of the siding, you potentially have a serious problem. Without Z-flashing the only thing between water infiltration in the siding seam is the caulk on the top of the 2-by-12. In that case, be diligent in regularly caulking the entire seam where the 2-by-12 meets the siding. Inspection and recaulking once a year is absolutely necessary preventive maintenance.

As for the type of caulk, if the siding is painted, use a good acrylic painter’s caulk. If the siding is stained, use a clear silicone caulk made for exterior use.

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Copyright 2006 Bill and Kevin Burnett

With six months under its belt, it was time to check in with Redfin to see how the Seattle-based online real estate brokerage viewed the initial two quarters of its discount realty service.

What did the company underestimate in dealing with consumers?

“It may sound like a cheesy answer but it’s been a lot busier than we had expected,” said Glenn Kelman, president and chief executive. “We are handling a lot more deals per week than we had anticipated. We want to get it right — and our agents are paid on customer satisfaction, not a traditional commission. Consequently, it has slowed our progress into new markets like Los Angeles and San Diego.”

The company was honored at the annual Real Estate Connect Conference recently in San Francisco for the Most Innovative New Business Model. The Innovator Awards honor forward-thinking technology, business models and pioneers in online real estate, brokerage and mortgage companies.

David Eraker, who founded the company in October 2002, recently left Redfin to “pursue new opportunities.”

The site, which featured mapping capabilities for Seattle real estate searches, got off the ground in October 2004. Redfin raised its first venture capital in September 2005 before launching the online brokerage in February 2006.

Redfin, with $8 million of new funding from investors like Paul Allen’s Vulcan Capital and the well-regarded Madrona Venture Group, rolled out the online brokerage this spring in the San Francisco Bay Area. The business model calls for potential home buyers to do the search work themselves and then receive a rebate on the traditional commission when the deal closes.

For example, while all commissions are negotiable by law, it’s common that real estate brokers have received a 6 percent commission on the sale of residential property for homes priced $300,000 and under in many U.S. markets. Of that total, the selling side receives a 3 percent commission on the sales price and the buying side receives 3 percent. (Years ago, the selling side received two-thirds; the buying side one-third).

Under the Redfin setup, the buyer gets back 2 percent of the 3 percent selling side. The company says the average refund is $11,402.

The Redfin model is aimed at computer-oriented professionals who know how to search their desired neighborhoods online and have an idea of the type of home they would like to own. Once a home is targeted, customers visit open houses, and then contact Redfin when they are ready to write an offer through the company’s “online wizard.” A Redfin agent then contacts the listing agent to ascertain the seller’s needs and expectations, then critiques the offer and negotiates with the seller’s agent.

If the deal is accepted, Redfin says its agents stay in the loop via telephone, coordinating the appraisal and inspection plus escrow and title insurance services. It’s this portion of the transaction — after the purchase and sale agreement is signed — that has drawn the attention of traditional agents. Many of them feel that discount brokers disappear once the contract is “signed all around,” leaving the listing agent to perform all the chores needed until closing.

Two common questions Redfin has faced:

What happens when a buyer needs to gain entry to a home when an open house is not scheduled?

Typically a professional “relationship” is established when an agent shows a specific house to a customer. According to Kelman, a Redfin agent can be available to accompany clients to a home for sale. The first “half-day” is complimentary, but a fee of $250 is charged for a full day.

In addition, Redfin will refer customers to other traditional agents if several home tours are needed. However, a customer cannot use a Redfin Connect partner agent to see homes and then qualify for a commission refund through Redfin Direct. The partner agent who did the work of providing the home tour is entitled to the commission.

Many consumers prefer to interview agents and to meet their chosen representative face to face. Has that been a drawback?

“While meeting the agent in person has not been a huge issue, some customers have come in to the office to meet the agent,” Kelman said. “I think the reason it has not been an issue is that we’ve found that what the traditional agent wants to deliver is not what the consumer wants. The typical agent wants to find the house of their dreams, while buyers want help with negotiating.”

Redfin is just one of the new players horning in on the traditional real estate model. And the options will continue in an effort to ascertain what consumers really want.

Why do you think Baskin-Robbins started with 31 flavors?

Tom Kelly’s new book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com. Tom can be reached at news@tomkelly.com.

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Copyright 2006 Tom Kelly

Whether you already own a house or condo, or plan to buy one, you will profit from the sage advice of Barbara K. in her new book “Invest in Your Nest.” This highly detailed book explains which home improvements add value to your residence, the approximate costs, and even which jobs you can do yourself and which should be done by professionals.

Please don’t ask me why author “Barbara K.” uses that name. Maybe she’s in the witness protection program? Just between us, her real last name is Kavovit. If I knew as much about home renovation as she obviously does, I would be proud to use my real name.

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This fascinating new book has two goals: one is to encourage readers and show them how to buy their first homes. Barbara K. places special emphasis on single moms, because that’s what she is. Judging from the photo of her huge home she built, she and son Zach have more than enough room. The second purpose is to show how to add value to a home by making smart improvements.

The first one-third of the book is about how to buy your home. Barbara K. reveals how she bought her first house when she was earning just $40,000 per year. Yet she bought a $500,000 house. The author takes readers step by step through the process, from checking and correcting credit reports, to finding the right house, and obtaining a mortgage.

Barbara K. recommends buying a fixer-upper house and doing as much fix-up work as possible. “Why pay someone else for work you can do to your exact specifications yourself? Don’t be afraid of work, which can make you money at the same time,” she advises.

Along the way, the author suggests working with real estate professionals, such as a buyer’s agent, mortgage broker, professional home inspector, and real estate attorney, to avoid costly mistakes.

After buying a house, Barbara K. says, “Every time I build, renovate, or move in to a home, I think about how I can increase its value so I can eventually sell and upgrade.” In other words, she wants to pyramid her real estate wealth while improving her lifestyle by buying homes needing profitable improvements.

Although the first few chapters are the most valuable, the remainder of the book goes into great detail about upgrading a house, room by room and component by component. There is virtually nothing Barbara K. doesn’t tackle. For example, when discussing kitchen improvements, she goes into great detail about counter finishes, their desirability, and approximate costs.

As an experienced home renovator, I wish I had this book when I started out years ago. It would have saved me from some costly mistakes. However, if the book has a flaw, it is the author makes the many home improvements seem too easy. Especially when fixing an entire home, nothing is as neat and uncomplicated as Barbara K. makes it sound.

Chapter topics include “The Big Buy”; “The Essential Sell”; “The Inside Story”; “Finishes and Function”; “Adding On”; “The Crucial Kitchen”; “The Indispensable Bathroom”; “Curb Appeal”; and “Rooms for Living.”

Although not a separate chapter, I especially enjoyed the attention paid to outdoor landscaping, which I always thought was very important. “Landscaping is the picture frame around your home. Just as the wrong frame can diminish a stunning piece of artwork, the right frame elevates the painting’s beauty. In much the same way, landscaping can truly showcase your home,” the author emphasizes.

Home renovators, whether just sprucing up your residence or taking on a major home fix-up, will profit from this book because it explains in great detail the projects that add value to homes. Especially valuable are the cost and time estimates, as well as the author’s advice based on her experiences renovating many homes. On my scale of one to 10, this outstanding book rates a solid 10.

“Invest in Your Nest,” by Barbara K. (Rodale Books, Emmaus, PA), 2006, $19.95; 219 pages; Available in stock or by special order at local bookstores, public libraries, and amazon.com.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

DEAR BOB: I am retired, age 72, and in relatively good health. But I am “house rich and cash poor,” as you often mention. I’ve been looking into a reverse mortgage to improve my income. Also, my house needs a new roof and other repairs. When my daughter visited recently, I discussed a reverse mortgage with her. She was very opposed, saying the bank would wind up owning my house. I want to leave her a nice inheritance. But I’m worried that if I live too long, there won’t be anything left for her. What do you advise? –Helen H.

DEAR HELEN: Many selfish adult children try to talk their parents out of obtaining a reverse mortgage. The obvious reason is a reverse mortgage will reduce the amount of your daughter’s inherited equity in the house.

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However, you have no moral or legal obligation to leave your selfish daughter anything. She is clearly wrong. The bank will not wind up owning your house.

When you decide to sell, move out for longer than 12 months or die, the reverse mortgage must be paid off from the house’s sales proceeds. The remaining equity goes to your heirs, presumably including your daughter.

The Bible does not say, “Thou shalt leave thy ungrateful heirs a big equity in thy house.” You have no obligation to leave your daughter anything, especially if she doesn’t want you to enjoy your home and keep it in good repair by obtaining a reverse mortgage.

NO TAX DEDUCTION IF YOU DON’T PAY THE MORTGAGE

DEAR BOB: I am planning on selling my home and buying another. My daughter is willing to move in with me. I would like to add her name to the deed so she can deduct half of the home’s mortgage interest and property taxes on her income tax each year. Can this be done if I add her to the deed but not to the mortgage? –Shirley McW.

DEAR SHIRLEY: For your daughter to deduct any mortgage interest and/or property taxes, she must be on the title and actually have proof she made the payments, such as cancelled checks. However, she does not need her name on the mortgage obligation itself.

Just being on the title alone doesn’t entitle a person to the itemized tax deductions unless that person actually paid the payments. Please consult your tax adviser for details.

WHAT IS BEST PROOF OF HOME OWNERSHIP?

DEAR BOB: Last March my husband and I moved into our new home for which we paid all cash. Do we need a legal document proving this home is paid and is ours? If either of us dies, will the surviving spouse or our children have any legal difficulties? –Irma F.

DEAR IRMA: I hope you obtained an owner’s title insurance policy at the time of purchase. It will show you and your husband own the house with no liens or encumbrances, except property taxes payable when they come due.

The title policy should also specify how you hold title. If it is as joint tenants with right of survivorship (or as tenants by the entireties in states allowing that method), when one of you dies, the survivor automatically receives full title without probate court proceedings. However, you both need written wills just in case you die at the same time, such as in a plane crash.

Better yet, holding title in your revocable living trust both avoids probate and provides for the successor trustee to manage or even sell the property if one of you becomes incapacitated, such as by Alzheimer’s disease or a severe stroke. For details, please consult a local real estate attorney.

The Robert Bruss special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

Dear Barry,

Last month, the gas company charged us nearly $500, up from $39 the previous month. We had all the gas fixtures checked by a contractor and he found no problems. But when the gas company came out, they said the problem was a leaking TPR valve on the water heater. Can you please explain what a TPR valve is and how is could cause our gas bill to skyrocket like this? –Melissa

Dear Melissa,

The gas company’s claim makes very little sense. There is no logical relationship between gas leaks and TPR valves.

TPR stands for “temperature pressure relief.” The purpose of a temperature pressure relief valve is to release steam and hot water when a water heater becomes too hot. These valves have been standard equipment on water heaters since the mid-1960s. Prior to that time, excessive heat and pressure could cause a water heater to explode. TPR valves are simply there to release the pressure — to prevent loss of life and destruction of property.

When a TPR valves leaks, all that is expelled is hot water and steam, not gas! Furthermore, if your TPR valve were leaking, you would see the hot water at the end of the discharge pipe. If you don’t see leaking water, either the valve is not leaking or the end of the pipe is not in a visible location. For example, the end of the pipe could be under the house (a prohibited location, by the way).

The gas company might argue that a leaking TPR valve could cause the burner to work overtime in order to heat the cold water that comes in as the hot water leaks out. But the volume of cold water that would require $460 worth of gas would probably fill a swimming pool, and a leak of that magnitude would certainly be apparent somewhere.

Whomever you spoke to at the gas company is apparently in need of an entry-level course in water heater anatomy. If the gas company is unwilling to reconsider the cause of your increased bill, you can report them to the regulatory agency that governs utility companies in your area.

Dear Barry,

The branches from my eucalyptus trees hang over the property line. The neighbor is complaining that I am responsible for cutting these branches. According to my research, whatever is on the neighbor’s side of the fence belongs to the neighbor. Is this your understanding as well? –Dan

Dear Dan,

This is a matter of law that may vary from state to state. To verify your position, you can research the matter in the law library at your local courthouse. The common understanding, however, is that when branches from a neighbor’s apple tree hang over your fence, you own the apples and are entitled to eat them without your neighbor’s permission. On this basis, your neighbor could be said to own the eucalyptus branches that overhang his yard. If you want to turn the tables, complain to him that his eucalyptus branches are blocking your view and demand that he cut them immediately.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Copyright 2006 Barry Stone

DEAR BOB: I am selling a condo that is in my daughter’s name. I have lived in the condo for the last seven years and paid the mortgage payments. The sale will close the first of next month. It will show up as a $120,000 capital gain for my daughter. Can she use the sales proceeds to pay for another house for me to live in and claim it as a gift? –Sandra R.

DEAR SANDRA: Because the condo was not your daughter’s principal residence at least 24 of the 60 months before its sale, she is not qualified for the Internal Revenue Code 121 tax exemption up to $250,000.

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Since your name is not on the title to the condo, although you paid the mortgage payments, you are also not eligible for the $250,000 tax exemption. Therefore, when the condo sale closes, your daughter becomes liable for the capital gain tax on her $120,000 condo sale profit.

It is a shame you and your daughter didn’t consult your tax advisers. If you had done so 24 months ago, and if your name was on the condo title, then you could have deducted the mortgage interest paid and you would qualify for the IRC 121 principal-residence sale-tax exemption up to $250,000.

Your daughter can give you up to $12,000 in 2006 without filing a federal gift tax return. Above that amount, she must file a gift tax return. However, if her lifetime non-exempt gifts have been less than $1 million, she will not owe any gift tax if she gives you $120,000 to buy another home. For full details, please consult your tax adviser.

DATE-OF-DEATH MARKET VALUE DETERMINES STEPPED-UP BASIS

DEAR BOB: My three sisters and I sold a house inherited from our mother. Do we owe capital gains tax on the sale proceeds? The house was sold for about $150,000 more than she paid for it some years ago –Lucy S.

DEAR LUCY: All that matters are (1) what was the “stepped-up basis” market value of the house on the date of your mother’s death, and (2) what was the net amount received from the house sale?

If the net amount received, after paying sales expenses, exceeds the market value on the date of death, the difference is your taxable capital gain. In most situations where an inherited property is sold shortly after receiving title with a stepped-up basis, the capital gain tax will be very small. For details, please consult your tax adviser.

OWNER’S TITLE INSURANCE PAYS UP TO POLICY PURCHASE PRICE LIMIT

DEAR BOB: Let’s assume I purchased my home 10 years ago for $150,000 and obtained an owner’s title insurance policy at that time. Suppose I sell it now for its current $400,000 market value but I discover I don’t own marketable title. Will the title insurance pay me $150,000 or $400,000? –Bill S.

DEAR BILL: Your owner’s title insurance policy will pay you, in the event of a 100 percent total loss, the $150,000 policy limit at the time of your purchase.

However, total title losses rarely occur. In a situation such as you describe, the title insurer will attempt to negotiate a settlement with the title claimant so you will not lose the property.

If that isn’t possible, perhaps because your grantor forged a signature on your deed and the true owner or the heir now claims ownership, the most the title insurer would have to pay you is the $150,000 policy limit in this example.

LONG COMMUTE DOESN’T ENTITLE HOME SELLER TO PARTIAL EXEMPTION

DEAR BOB: In October 2005 I bought my home. But in March 2006 I found an excellent job, which is a 1.5-hour drive from my home. My wife and I have put the house up for sale and are in the process of moving close to my new job. I know that to get the full $250,000 per owner principal-residence-sale tax exemption, we must own and occupy the home 24 of the 60 months before its sale. But what are the tax implications in our situation where after only a few months of ownership and occupancy we have to move due to a long commute? Is this an “unforeseen event” so our expected $20,000 net profit will be tax-free? –Abdoul K.

DEAR ABDOUL: Sorry, a long commute does not qualify as an “unforeseen event” so you can claim a partial principal-residence-sale tax exemption. Your $20,000 net profit will be taxed as ordinary income if you own the house less than 12 months.

If you own it 12 months or longer, then you qualify for the federal long-term capital gain maximum tax rate of 15 percent, plus the applicable state tax. For full details, please consult your tax adviser.

LEASE TERMS DON’T CHANGE WHEN PROPERTY IS SOLD

DEAR BOB: My husband and I own a property that is leased to a business with nine years left on the lease. What legal complications will arise if we sell that property? –Susan K.

DEAR SUSAN: There aren’t any special complications when you sell a property that has an existing lease. The lease terms remain unchanged.

The new owner must honor the terms of the existing lease. The current tenant then will pay the rent to the new owner. You must transfer the tenant’s security deposit to the new owner. Everything else remains unchanged. For more details, please consult a local real estate attorney.

AVOID BUYING A CONDO ON LEASED LAND

DEAR BOB: What was the name of that book you recommended some time ago about buying a condominium? I am thinking of buying a condo in New Hampshire where there are land lease payments, plus association dues. Is this a good or bad deal? –Barbara L.

DEAR BARBARA: The excellent recommended book is “Everything You Need to Know Before Buying a Co-op, Condo, or Townhouse” by Ken Roth. It is available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.

I suggest you avoid buying a condo on leased land. The reason is, as the lease draws to a close, such as in 50 years or longer, the condo becomes worth less and less. When the land lease expires, unless the homeowner’s association has an option to buy out the land lease, the building becomes the property of the landowner. For full details, please consult a local real estate attorney.

HOW TO SURVIVE A BAD LOCAL REAL ESTATE MARKET

DEAR BOB: We own our home in a bad local real estate market. There seem to be no jobs and no money. All our income goes to pay for gasoline and credit card interest. Two out of three houses in our neighborhood are for sale. Please help –Fred W.

DEAR FRED: I’m sure things really aren’t that bad. If you are motivated to sell your house or condo, I suggest a lease with an option to buy. I’ve been using lease-options for more than 25 years, through good times and bad. When structured correctly, lease-options never fail.

However, if you want a fast all-cash home sale for top dollar, under the circumstances you describe, forget it. Details are in my special report, “How to Profitably Use a Lease-Option to Buy or Sell Your Home or Investment Property,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

CAN SISTER FORCE BROTHER TO BUY OUT HER PROPERTY INTEREST?

DEAR BOB: My sister and I inherited two 10-acre parcels as tenants in common. We each own half of each parcel. I live on one parcel and the other one has no public road access. It is landlocked. My sister wants to get an appraisal and then wants me to buy her out or sell the properties. Can she force me to sell? Can the two parcels be appraised separately? –Brett J.

DEAR BRETT: Your sister can force you to sell both parcels in which you are tenant-in-common owners. The legal action is called a partition lawsuit.

However, she cannot force you to buy her out. All she can do is bring a partition lawsuit and the judge can order both parcels sold with the sales proceeds divided between the co-owners.

If you want to keep the parcels, I suggest you somehow come up with enough cash to buy out your sister, such as by refinancing. Or maybe she will accept a mortgage for her half of the equity. Yes, the two parcels can be appraised separately. For more details, please consult a local real estate attorney.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home or Investment Property for Nothing Down,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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Copyright 2006 Inman News

If only there was a foolproof method for figuring out what a property is worth on the open market. Then it would be easy to know how much to offer so that you wouldn’t overpay, or risk losing out because you offered too little. Home sellers could price to sell without having to endure a series of price reductions and months on the market.

Some buyers and sellers turn to Internet sites like Zillow.com to help them through the valuation quagmire — with varying degrees of success. A San Francisco home buyer recently got caught up in this approach when he made an offer on an attractive new listing.

The seller’s agent advised the seller to list under the $2 million mark to stimulate interest. The seller, who understood that the market was challenging, took this advice and listed the property for $1.895 million.

The buyer relied on Zillow.com for pricing information when he made his offer. As it turned out, he offered too little. The seller received two offers and the property sold for $2.1 million.

The problem with Internet sites that purport to tell you what a property is worth is that they usually derive their data from the public records. This data might include such things as the last recorded sale price, the square footage or numbers of bedrooms and baths.

The sale price alone can be misleading in neighborhoods where there is a lot of variability in the size, price and condition of houses. Also, the square footage figures and room counts recorded in the public records are often wrong, either because they’re out of date or they weren’t right in the first place.

For example, a home recently sold on Trestle Glen Road in Oakland, Calif. The information provided by Zillow indicates that the property sold for $951,000. The additional information indicates that the house has two bedrooms, one bath and 1,470 square feet. If you were to rely on this information and pay around $950,000 for another two-bedroom house in the neighborhood, you would probably pay too much.

Actually, the house has three bedrooms, two bathrooms and a usable basement. There is also a detached studio on the property with a two-bedroom, one-bath guest cottage attached that was built with a building permit. The two-bedroom, one-bath, 1,470-square-foot house really has a lot more to offer for $951,000 than was indicated on Zillow.com.

Before the recent sale of the Trestle Glen property, Zillow gave it a value of $726,683. If you’d used this information as a guide to the appropriate offer price, you’d have been out of luck. The sellers listed their property at $849,000 and received six offers.

HOUSE HUNTING TIP: The best way to find out what a property is worth is to consult with a real estate professional who is knowledgeable in the area in which you want to buy or sell. The Internet has revolutionized the real estate business in a positive way. But you can’t expect the Internet to factor in the nuances of pricing that can only be understood through years of experience selling homes in the area.

It’s helpful to visit Sunday open houses to get a feel for local property values. Keep track of what sells and for how much, and what doesn’t sell. The key is to see the listings before they sell. Then you’ll understand why the three-bedroom house that had been completely remodeled sold for so much more than the house next door that hadn’t been touched in 30 years.

THE CLOSING: It’s hard to find this kind of information on the Internet.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

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Copyright 2006 Dian Hymer

Last year, I wrote an article advising borrowers on how to determine whether refinancing an adjustable-rate mortgage (ARM) into a fixed-rate mortgage (FRM) was advantageous. On recently rereading that article, I winced with the realization that I had made the problem more complicated than it had to be. Since the question continues to confront many borrowers, this article attempts to make amends.

The problem with my previous article is that it implies that a borrower cannot conclusively determine whether refinancing will pay without using a calculator. That is not the case. While writing the article, I developed a calculator to address the problem, and I allowed myself to become so heavily invested in it that I couldn’t see any way to operate without it.

To properly assess this refinance decision, the borrower needs four pieces of information: 1) The current rate on his/her ARM; 2) The period until the next ARM rate adjustment; 3) The current fully indexed rate (FIR) on his/her ARM; and 4) The no-cost rate on the FRM into which he/she can refinance in today’s market.

Most borrowers know the ARM rate they are currently paying and when the rate will adjust, but few know the fully indexed rate. This is the most current value of the interest-rate index used by the ARM, plus the margin. The index used and the margin are both shown in the note, while the current value of the index is easily available online. Go to http://www.mortgage-x.com/general/mortgage_indexes.asp; it has them all.

The importance of the FIR is that it is the best available predictor of how your ARM rate will change. At the next adjustment date, the new ARM rate will reset to equal the index value at that time, plus the margin. [Note: usually there is a limit on the size of a rate change -- this "rate adjustment cap" can also be found in the note -- but in today's market the limit is seldom relevant]. If the index stays unchanged between now and then, the ARM rate at the next adjustment will be today’s FIR.

This generalization has to be modified slightly for four indexes: COFI, CODI, COSI and MTA. Because these indexes lag the market, the best estimate of what they will be when your ARM rate is adjusted is their projected value 12 months ahead, not their value today. The mortgage-x site referred to above provides such projections for you.

The relevant FRM rate is the one you can command in today’s market without incurring any refinance costs. Shop for a no-cost refinance at one of the better online sites, such as E-Loan or Amerisave.

Borrowers with an ARM can find themselves in any of four possible situations:

• Both the ARM Rate and the FIR Are Higher Than the FRM Rate: This means that the borrower is losing money now, and will continue to lose money after the next ARM rate adjustment. Conclusion: refinance immediately.

• Both the ARM Rate and the FIR Are Below the FRM Rate: This means that refinancing is a loser now, and will continue to be a loser after the next ARM rate adjustment. Conclusion: do nothing.

• The ARM Rate is Below While the FIR is Above the FRM Rate: This means that the borrower is saving money on the ARM now, but the situation will be reversed at the next ARM rate adjustment. Conclusion: wait until shortly before the rate adjustment date and then refinance.

  This is the most common situation. Some borrowers get spooked into hasty action by fear that rates will be higher in the future, which could happen, but rates could also be lower. My advice is not to give up the clear benefit of holding the ARM until the rate adjusts unless the current FRM rate is about the maximum the borrower can afford. In that case, the reward from hanging onto the ARM until the rate adjusts is outweighed by the risk.

• The ARM Rate is Above While the FIR is Below the FRM Rate: This means that the borrower is losing money on the ARM now but that the situation will reverse itself after the next rate adjustment.

  It is clear that if the borrower refinances in this case, it should be done immediately. What is not clear is whether the short-term savings from getting rid of the high-priced ARM now justifies giving up a lower ARM rate in the future. This is the one situation that requires my calculator 3e. And while the situation is uncommon today, it would quickly become common if rates begin another downward trend.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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Copyright 2006 Jack Guttentag

From the Fed’s pause last week through Tuesday, long-term rates rose every day, the bond market demonstrably upset that the Fed had flinched from the inflation fight.

Two inflation reports later, mortgage rates are lower than they were before the pause, and Federal Reserve Chairman Ben Bernanke is the wisest man alive.

I suspect that both reactions were overdone, but the show was somethin’ special.

The Producer Price Index, heavy with physical goods, rose overall only .1 percent in July (versus .4 percent forecast), and the core rate actually declined .3 percent, the biggest drop in three years. Yeah, distorted by giveaway discounts for autos, and yeah, prices of services are not included, but there was no sign of a worsening problem.

Then consumer prices…not as pretty, overall up .4 percent, about where we’ve been, but the core rate rose only .2 percent, breaking the frightening, two-month string of .3 percent gains, and also breaking the inflation-is-ramping-up psychology.

New economic data contributed to the interest-rate decline. Housing is headed into the tank, albeit at a steady glide slope, not a dive: July starts of new homes fell 2.5 percent, that after a 5.7 percent slide in June; and new building permits fell 6.5 percent. Since nose-over early last fall, starts are down 13 percent, and builders report more and more contract cancellations, and offer deeper incentives to get the ones they have.

The non-housing economy is still doing well: industrial production picked up .4 percent, a little off expectation, but fine; and the fraction of capacity in use did not rise as forecast, but held steady at a strong 82.4 percent.

Commodities retreated, further easing inflation fears: oil broke under $70 this morning, remarkable after the BP shutdown in Alaska. Credit went to the cease-fire in Lebanon, but anyone who thinks tensions in that part of the world have eased is on his/her fourth Martini. Wholesale gasoline has dropped under two bucks repeatedly, which means three-buck gas at the pump is headed down soon, and a lot. Natural gas has stayed six-something persistently, less than half last winter, and its fat futures price will need a bad Gulf hurricane soon to stay bloated.

Sequence is important, here. Credit-sensitive housing is slowing, but measures of distress barely register on the scale. RealtyTrac comes up with a 35 percent increase in foreclosures since last year, but the new numbers are still historically very low. The leading indicator, loan delinquency, has hardly budged. Certainly, the stimulus from housing is fading, but there is not yet braking pressure from the sector.

The consumer is the second sector on which the bond-market recession-hopers hang their hats. Consumers are badly stressed by energy prices, and wages not keeping up with inflation, sure, but there’s no sign of distress — the big pull-back from retail spending that you’d expect to see on the way into recession.

The business sector is doing very well, indeed. The next recession shoe to drop would ordinarily be overextended corporations, deep in debt. We do not have that condition at all; if the consumer faints, then the business world would slow, but they’re not overextended. The leading cause of consumer fainting is usually layoffs and a hiring stop by a fading business sector, but we have none of that. Yet.

If the consumer is to fade any time soon, housing will have to do the deed, perhaps as neighborhoods turn into forests of for-sale signs, and even the non-sellers become cautious.

All of that is speculative. This is certain: the bond market has priced in significant Fed easing next year, and it’s WAY early for that. The 10-year T-note is 4.85 percent, nearly a half-point under the Fed. If we get sub-6.5 percent mortgage deals, think hard about refinancing that ARM that has 18 months to go at 4.25 percent. Now, not then.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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Copyright 2006 Lou Barnes